6-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934

For the month of June, 2023

Commission File Number: 001-39111

FLJ Group Limited

(Registrant’s Name)

2F, Building 5
No.18, Gongping Road
Hongkou District, Shanghai, 200082
People’s Republic of China
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒

Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐


 

EXPLANATORY NOTE

This report on Form 6-K, including the exhibits hereto, is hereby incorporated by reference into the Registrant’s Registration Statement on Form F-3 initially filed with the U.S. Securities and Exchange Commission on July 27, 2021 (Registration No. 333-258187) and shall be a part thereof from the date on which this current report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 

 

 

 

 

 

 

 

 


 

TABLE OF CONTENTS

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

2

 

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2023 (UNAUDITED) AND SEPTEMBER 30, 2022

 

13-14

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE SIX MONTHS ENDED MARCH 31, 2022 AND 2023

 

15

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT FOR THE SIX MONTHS ENDED MARCH 31, 2022 AND 2023

 

16

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2022 AND 2023

 

17

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

18

 

 

 

 

1


 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

FLJ Group Limited (“we” or “us” or “our”) is a leading technology-driven long-term apartment rental platform in China, offering young, emerging urban residents conveniently located, ready to move in, and affordable branded apartments as well as facilitating a variety of value-added services. We are one of the pioneers in providing branded rental apartments in China. Under our dispersed lease-and-operate model, we lease apartments from landlords and transform these apartments, mostly from bare-bones condition, into standardized furnished rooms to lease to people seeking affordable residence in cities, following an efficient, technology-driven business process.

We have continued to optimize our rental asset portfolio to improve overall profitability and efficiency. The number of our rental units contracted and available rental units decreased from 55,177 as of March 31, 2022 to 28,400 as of March 31, 2023. As a result, our net revenue decreased by 45.2% from RMB 364.2 million (US$57.5 million) in the first half of fiscal year 2022 to RMB 199.7 million (US$29.1 million) in the first half of fiscal year 2023, whereas our total operating cost and expenses decreased by 56.2% from RMB553.3 million (US$87.3 million) in the first half of fiscal year 2022 to RMB242.4 million (US$35.3 million) in the first half of fiscal year 2023 and our net loss narrowed by 82.2% from RMB 243.2 million (US$38.4 million) in the first half of fiscal year 2022 to RMB 43.3 million (US$6.3 million) in the first half of fiscal year 2023.

Summary Consolidated Financial and Operating Data

The summary unaudited condensed consolidated financial information for the six months ended March 31, 2022 and 2023 and as of March 31, 2023 has been derived from our unaudited condensed consolidated financial statements as of and for the six months ended March 31, 2023 included herein. Our unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements. The summary condensed consolidated balance sheet data as of September 30, 2022 has been derived from our audited consolidated financial statements included in our annual report on Form 20‑F for the fiscal year ended September 30, 2022 filed with the SEC on January 23, 2023 (the “FY 2022 annual report”). The summary condensed consolidated financial data should be read in conjunction with those financial statements and the accompanying notes and “Item 5. Operating and Financial Review and Prospects” included in our FY 2022 annual report.

Summary Unaudited Condensed Consolidated Statements of Comprehensive Loss

 

Six months ended March 31,

 

2022

2023

 

RMB

RMB

US$

 

(in thousands)

 

 

(Unaudited)

Net revenue:

 

 

 

Rental service

332,783

175,148

25,504

Value-added services and others

31,431

24,522

3,571

Total net revenues

364,214

199,670

29,075

Operating costs and expenses:

 

 

 

Operating cost

(405,661)

(217,295)

(31,642)

Selling and marketing expenses

(189)

(15)

(2)

General and administrative expenses

(25,329)

(15,422)

(2,246)

Research and development expenses

(1,853)

(1,308)

(190)

Impairment loss on long-lived assets

(100,156)

(10,474)

(1,525)

Other income (expense), net

(20,074)

2,157

314

 

2


 

Total operating costs and expenses

(553,262)

(242,357)

(35,291)

Loss from operations

(189,048)

(42,687)

(6,216)

Interest expense, net

(54,174)

(638)

(93)

Foreign exchange loss, net

(5)

Loss before income taxes

(243,227)

(43,325)

(6,309)

Income tax (expenses) benefits

3

Net loss

(243,224)

(43,325)

(6,309)

Net loss per share—Basic and diluted

(0.14)

(0.00)

(0.00)

Weighted average number of ordinary shares used in computing net loss per share—Basic and diluted

1,728,612,425

27,715,937,039

27,715,937,039

Net loss

(243,224)

(43,325)

(6,309)

Other comprehensive income, net of tax of nil:

 

 

 

Foreign currency translation adjustments

3,642

5,160

751

Comprehensive loss

(239,582)

(38,165)

(5,558)

 

Summary Condensed Consolidated Balance Sheet Data

 

As of September 30,

As of March 31,

 

2022

2023

 

RMB

RMB

US$

 

(in thousands)

 

 

(Unaudited)

Total current assets

71,160

87,180

12,694

Total non‑current assets

24,380

428,219

62,354

Total assets

95,540

515,399

75,048

Total current liabilities

668,402

935,218

136,179

Total non-current liabilities

188,901

27,506

Total liabilities

668,402

1,124,119

163,685

Total current assets less current liabilities

(597,242)

(848,038)

(123,485)

Net liabilities

(572,862)

(608,720)

(88,637)

Total shareholders’ deficit

(572,862)

(608,720)

(88,637)

Total liabilities and shareholders’ deficit

95,540

515,399

75,048

 

 

3


 

Summary Unaudited Condensed Statement of Cash Flows

 

Six months ended March 31,

 

2022

2023

 

RMB

RMB

US$

 

(in thousands)

 

 

(Unaudited)

 

 

Net cash used in operating activities

(27,545)

(25,478)

(3,713)

Net cash used in investing activities

Net cash provided by financing activities

16,532

25,527

3,717

Effect of foreign exchange rate changes

(142)

(545)

(77)

Net decrease in cash, cash equivalents and restricted cash

(11,155)

(496)

(73)

Cash, cash equivalents and restricted cash at the beginning of period

19,252

2,878

419

Cash, cash equivalents and restricted cash at the end of period

8,097

2,382

346

 

Key Operating Data

The table below sets forth our key operating data as of March 31, 2022 and 2023:

 

As of March 31,

 

2022

2023

Number of rental units contracted

55,177

28,400

Number of rental units under renovation

-

-

Number of available rental units

55,177

28,400

Number of occupied rental units

49,891

25,432

Number of vacant available rental units

5,286

2,968

 

The table below sets forth the numbers of available rental units as of March 31, 2022 and 2023:

 

As of March 31,

 

2022

2023

East China(1)

13,989

5,662

North China(2)

20,974

14,128

Southwest China(3)

17,361

8,610

Others(4)

2,853

-

____________

(1) includes Fuzhou, Hefei, Nanjing and Qingdao

(2) includes Beijing, Tianjin and Xi’an

(3) includes Chengdu and Kunming

(4) includes Nanchang and Nanning

 

The table below sets forth our key operating data for the six months ended March 31, 2022 and 2023:

 

4


 

 

Six months ended March 31,

 

2022

2023

Period-average occupancy rate (%)

91.6%

88.9%

Average monthly rental (RMB)

 

 

before discount for rental prepayment

1,060

1,065

after discount for rental prepayment

1,060

1,065

Rental spread margin (%)

 

 

before discount for rental prepayment

16.5%

16.5%

after discount for rental prepayment

16.5%

16.5%

 

Numbers of Rental Units Contracted, Numbers of Available Rental Units, and Number of Occupied Rental Units

Number of rental units contracted and number of available rental units are important operating measures by which we evaluate and manage the scale of our business and growth. Apartments in China usually have two to three bedrooms, which are suitable for a household, but could be too costly for individual tenants. We typically convert a leased-in apartment to add an additional bedroom, or the N+1 Model, and rent each bedroom, or rental unit, separately to individual tenants after standardized decoration and furnishing. The N+1 model further increases affordability and provides flexibilities and co rental efficiency for tenants.

Our rental units contracted refer to rental units in apartments that we have leased in from landlords. Our number of rental units contracted decreased by 48.5% from March 31, 2022 to March 31, 2023, as we continue to optimize our rental asset portfolio. Our number of available rental units refers to the number of our leased in rental units that have been renovated and ventilated and are ready for rent. Our number of available rental units and number of units contracted were the same both as of March 31, 2022 and March 31, 2023 because we did not renovate any new apartments during the respective periods as we have been focused on optimizing our existing rental asset portfolio.

Our occupied rental units refer to available rental units that have been leased out to tenants. Our number of occupied rental units was lower than our number of rental units contracted because of some of our available rental units’ vacancy, as it takes time to ramp up our occupancy rate to our target levels. Our number of occupied rental units decreased by 49.0% from March 31, 2022 to March 31, 2023, which is in line with the decrease in the total rental units contracted.

Period-average occupancy rate, Average Monthly Rental, and Rental Spread Margin

Our period-average occupancy rate is calculated by dividing the aggregate number of our leased-out rental unit nights by the aggregate number of available rental unit nights during a relevant period. Our period-average occupancy rate slightly decreased from 91.6% in the six months ended March 31, 2022 to 88.9% in the six months ended March 31, 2023 primarily because we continued to optimize our rental asset portfolio and terminated the leases of certain number of occupied rental units.

Our average monthly rental after discount for rental prepayment refers to the total rental we receive from our tenants for a period, net of value-added tax, divided by the number of leased-out rental unit nights for the relevant period times 30.5 (which represents the average number of days in a month). Our average monthly rental before discount for rental prepayment refers to the total rental we receive from our tenants for a period, net of value-added tax, after adding back any discount for rental prepayment, divided by the number of leased-out rental unit nights for the relevant period times 30.5 (which represents the average number of days in a month). Our rental spread margin after discount for rental prepayment refers to the rental spread after discount for rental prepayment as a percentage of the average monthly rental after discount for rental prepayment on a lease to a tenant on the same space. Our rental spread margin before discount for rental prepayment refers to the rental spread before discount for rental prepayment as a percentage of the average monthly rental before discount for rental prepayment on a lease to a tenant on the same space. Our leases with landlords generally contain rent holidays and typically lock in our rental cost for the first three years, and we record the total rental expense on a straight line basis over the initial lease term, or monthly straight-lined rental. We use big data to establish a fair and efficient rental pricing mechanism.

 

Our average monthly rental before discount for rental prepayment remains stable from RMB1,060 in the six months ended March 31, 2022 to RMB1,065 in the six months ended March 31, 2023, and our average monthly rental after discount

 

5


 

for rental prepayment also remains stable from RMB1,060 in the six months ended March 31, 2022 to RMB1,065 in the six months ended March 31, 2023. Our average monthly rental before and after discount for rental prepayment in both periods were the same because the rental discounts were originally given based on rental prepayments financed by rental installment loan and such arrangement ceased in May 2020 and therefore no more discounts have been given since then.

 

Our rental spread margin before and after discount for rental prepayment remains stable at 16.5% in the six months ended March 31, 2023 as compared to that in the six months ended March 31, 2023.

 

How Cash is Transferred through Our Organization

Prior to October 2021, the Company conducted its rental apartment operation business through variable interest entities (“VIE entities”), namely Qinke (China) Limited, Q&K Investment Consulting Co., Ltd., and Shanghai Qinke E-Commerce Co., Ltd. The Company underwent certain equity transfer in October 2021 as previous disclosed, as a result of which it no longer conducts any business operation through a VIE. However, as the Company has the power to direct the activities of these companies that most significantly impact their economic performance and has the obligation to absorb losses of these companies that could potentially be significant to these companies since their inception, it remains the primary beneficiary of these entities, and therefore, consolidated these entities in its consolidated financial statements as of March 31, 2023. See Note 1—Organization And Principal Activities to our unaudited condensed consolidated financial statements as of and for the six months ended March 31, 2023 included herein.

 

The following table presents the cash flows among FLJ Group Limited, its VIE entities and subsidiaries in the six months ended March 31, 2022 and 2023.

 

 

For the six months ended March 31,

 

2022

2023

 

(RMB in thousands)

FLJ Group Limited transferred to the VIE entities

FLJ Group Limited transferred to the subsidiaries

7,201

 7,987

The subsidiaries transferred to the VIE entities

 

 

All cash flows above were for financing purposes. No transfer of assets other than cash has occurred among the Company, its subsidiaries and the VIE entities. Our subsidiaries and the VIE entities have not made any dividend or distribution to the Company. The Company has not made any dividend or distribution to any U.S. investor. The WFOE and the VIE entities, on a consolidated basis, had been loss making and the VIE entities had not intended to pay, and had never paid, any earnings or amounts, such as service fee to the WFOE under the contractual arrangement as it had been loss making.

 

As a holding company, we rely upon dividends paid to us by our subsidiaries in the PRC to pay dividends and to finance any debt we may incur. If our subsidiaries or any newly formed subsidiaries or other consolidated entities incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries and other consolidated entities are permitted to pay dividends to us only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Pursuant to laws applicable to entities incorporated in the PRC, each of our subsidiaries and other consolidated entities in the PRC must make appropriations from after tax profit to a statutory surplus reserve fund. The reserve fund requires annual appropriation of 10% of after tax profit (a determined under accounting principles generally accepted in the PRC at each year-end) after offsetting accumulated losses from prior years, until such reserve reaches 50% of the subsidiary’s registered capital. The reserve fund can only be used to increase the registered capital and eliminate further losses of the respective companies under PRC regulations. These reserves are not distributable as cash dividends, loans or advances. In addition, due to restrictions under PRC laws and regulations, our PRC subsidiaries and other consolidated entities are restricted in their ability to transfer their net assets to us in the form of dividend payments, loans or advances. In addition, under regulations of the State Administration of Foreign Exchange of the PRC (the “SAFE”), Renminbi is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments outside of China, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made.

 

Critical Accounting Policies, Judgments and Estimates

 

6


 

 

Our expectations regarding the future are based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

 

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur, could materially impact the combined and consolidated financial statements.

 

When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.

 

Our critical accounting policies and practices include the following: (i) revenue recognition; (ii) convertible loans; (iii) lease accounting with landlords; and (iv) income taxes. See Note 2—Summary of Principal Accounting Policies to our unaudited condensed consolidated financial statements as of and for the six months ended March 31, 2023 included herein for the disclosure of these accounting policies. We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial statements.

 

Impairment of long-lived assets

 

We evaluates our long-lived assets and finite lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When these events occur, we measure impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, we recognize an impairment loss equal to the difference between the carrying amount and fair value of these assets.

 

For the six months ended March 31, 2022 and 2023, we recognized impairment of RMB 100,156 and RMB 10,474 against trademark and apartment rental contracts (See Note 5 – Intangible assets to our unaudited condensed consolidated financial statements as of and for the six months ended March 31, 2023 included herein), respectively.

Revenue Recognition

We source apartments from landlords and convert them into standardized furnished rooms to lease to tenants seeking affordable residences in China. Revenues are primarily derived from rental service and value-added services.

Rental Service Revenues

Rental service revenues are primarily derived from the lease payments from our tenants and are recorded net of tax.

We typically enter into 26-month leases with our tenants, a majority of which have a lock-in period of 12 months or shorter. The lock-in period represents the term during which termination will result in the forfeiture of deposit, which is typically one or two months’ rent. We determine that the lock-in period is the lease term under ASC 840. When tenants terminate their leases, we return unused portions of any prepaid rentals to the tenant within a prescribed period of time. Deposit can only be returned for termination after the lock-in period. Monthly rent is fixed throughout the lock-in period and there is no rent-free period or rent escalations during the period. We determine all lease arrangements with tenants are operating leases since the benefits and risks incidental to ownership remains with us. Revenue is recognized on a straight-line basis starting from the commencement date stated in the lease agreements.

Value-added Services and Others

 

7


 

Value-added services and others primarily consist of fees received from the tenants from our provision of internet connection and utility services as part of the lease agreement. The service fees are fixed in the agreements and recognized on a monthly basis during the period of the lease term. The service fee are recognized on a gross basis as we have latitude in determining prices and bear inventory risks.

 

 

Operating lease

 

We adopted the ASU 2016-02, Leases (Topic 842) on October 1, 2022 using a modified retrospective approach reflecting the application of the standard to leases existing at, or entered after, the beginning of the earliest comparative period presented in the consolidated financial statements.

 

We lease apartments from landlords, which are classified as operating leases in accordance with Topic 842. Operating leases are required to record in the balance sheet as right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. We have elected the package of practical expedients, which allows us not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date, and (3) initial direct costs for any expired or existing leases as of the adoption date. We elected the short-term lease exemption as the lease terms are 12 months or less.

 

At the commencement date, we recognize the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our incremental borrowing rate for the same term as the underlying lease.

 

The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. There was no impairment for right-of-use lease assets as of March 31, 2023.

 

Results of Operations

Net Revenues

Our total net revenues decreased by 45.2% from RMB364.2 million in the six months ended March 31, 2022 to RMB199.7 million (US$29.1 million) in the six months ended March 31, 2023.

Rental service. Our net revenue from rental service decreased by 47.4% from RMB332.8 million in the six months ended March 31, 2022 to RMB175.1 million (US$25.5 million) in the six months ended March 31, 2023, primarily due to the decrease in the number of occupied rental units as we continued to optimize our rental asset portfolio.
Value-added services and others. Our net revenues from value-added services and others decreased by 22.0% from RMB31.4 million in the six months ended March 31, 2022 to RMB24.5 million (US$3.6 million) in the six months ended March 31, 2023, primarily due to the decrease in the number of occupied rental units.

 

Operating Costs and Expenses

Our total operating costs and expenses decreased by 56.2% from RMB553.3 million in the six months ended March 31, 2022 to RMB242.4 million (US$35.3 million) in the six months ended March 31, 2023, primarily due to the decrease in our operating cost and general administration expenses.

Operating cost. Our operating cost decreased by 46.4% from RMB405.7 million in the six months ended March 31, 2022 to RMB217.3 million (US$31.6 million) in the six months ended March 31, 2023. The decrease was primarily due to the followings:

 

Rental cost. Our rental cost decreased by 42.8% from RMB300.7 million in the six months ended March 31, 2022 to RMB172.0 million (US$25.1 million) in the six months ended March 31, 2023, primarily

 

8


 

because of the decrease in number of our available rental units as we continued to optimize our rental asset portfolio.
Depreciation expenses. Our depreciation expenses decreased by 86.3% from RMB21.9 million in the six months ended March 31, 2022 to RMB3.0 million (US$0.4 million) in the six months ended March 31, 2023, primarily attributable to (i) the decrease in our available rental units and (ii) the impairment loss of property and equipment already provided in fiscal year 2022.
Personnel costs. Our personnel costs decreased by 50.1% from RMB81.3 million in the six months ended March 31, 2022 to RMB40.6 million (US$5.9 million) in the six months ended March 31, 2023, primarily attributable to the decrease of the available rental units managed by us and our cost-saving effort.

As a percentage of revenue, our operating costs decreased from 111.4% in the six months ended March 31, 2022 to 108.8% in the six months ended March 31, 2023, primarily attributable to our cost-saving measures including, among others, streamlining our personnel to save our rental apartment operating cost which is in line with our effort in optimizing rental assert portfolio.

Selling and marketing expenses. Our selling and marketing expenses decreased from RMB0.2 million in the six months ended March 31, 2022 to RMB15 thousand (US$2 thousand) in the six months ended March 31, 2023. As a percentage of revenue, our selling and marketing expenses decreased from 0.05% in the six months ended March 31, 2022 to 0.01% in the six months ended March 31, 2023.
General and administrative expenses. Our general and administrative expenses decreased by 39.1% from RMB25.3 million in the six months ended March 31, 2022 to RMB15.4 million (US$2.2 million) in the six months ended March 31, 2023, primarily attributable to decrease in share-based payment expense and personnel cost.
Research and development expenses. Our research and development expenses decreased from RMB1.9 million in the six months ended March 31, 2022 to RMB1.3 million (US$0.2 million) in the six months ended March 31, 2023, primarily due to our cost-saving efforts.
Impairment loss on long-lived assets. Our impairment loss on long-lived assets decreased from RMB100.2 million in the six months ended March 31, 2022 to RMB10.5 million (US$1.5 million) in the six months ended March 31, 2023, primarily because of the impairment loss already provided in fiscal year 2022.
Other income (expense), net. Our net other income (expense) increased by 110.9% from net other expense of RMB20.1 million in the six months ended March 31, 2022 to net other income of RMB2.2 million (US$0.3 million) in the six months ended March 31, 2023, primarily attributable to the decrease in disposal loss of rental contracts with landlords because we terminated fewer rental contracts with landlords in the six months ended March 31, 2023 as compared to that in the six months ended March 31, 2022.

 

Loss from Operations

As a result of the foregoing, our loss from operations decreased by 77.4% from RMB189.0 million in the six months ended March 31, 2022 to RMB42.7 million (US$6.2 million) in the six months ended March 31, 2023.

Interest Expense, Net

Our net interest expense decreased by 98.9% from RMB54.2 million in the six months ended March 31, 2022 to RMB0.6 million (US$0.1 million) in the six months ended March 31, 2023. The decrease was primarily attributable to the decrease in the interest expenses arising from the convertible notes as all the convertible notes had been converted on May 22, 2022.

 

Loss before income taxes

As a result of the foregoing, our loss before income taxes decreased by 82.2% from RMB243.2 million in the six months ended March 31, 2022 to RMB43.3 million (US$6.3 million) in the six months ended March 31, 2023.

 

 

9


 

Income tax (expenses) benefits

We recorded income tax benefits of RMB3 thousand in the six months ended March 31, 2022 and did not record any income tax expense or benefits in the six months ended March 31, 2023.

 

Net Loss

As a result of the foregoing, our net loss decreased by 82.2% from RMB243.2 million in the six months ended March 31, 2022 to RMB43.3 million (US$6.3 million) in the six months ended March 31, 2023.

 

Net loss per share

 

Our weighted average number of ordinary shares used in computing net loss per share was 1,728,612,425 in the six months ended March 31, 2022 and 27,715,937,039 in the six months ended March 31, 2023. The increase was primarily attributable to the conversion of all convertible notes into our ordinary shares in May 2022. As a result, our net loss per share improved from RMB0.14 in the six months ended March 31, 2022 to RMB0.00 in the six months ended March 31, 2023.

 

Liquidity and Capital Resources

To date, our principal sources of liquidity, which we have used to fund our growth, operations and capital expenditures for our apartments network, have been proceeds from tenants’ rental prepayment, availability under our bank facilities, capital lease and other financing, proceeds from our initial public offering, proceeds from issuance of preferred shares, and proceeds from our issuance of convertible notes. As of March 31, 2023, we had RMB2.3 million (US$0.3 million) in cash and cash equivalents and RMB106 thousand (US$15 thousand) in restricted cash. We did not have any capital commitment as of March 31, 2023.

Going Concern

 

We have been incurring losses from operations since our inception. Accumulated deficits amounted to RMB3,558,667 and RMB3,601,992 as of September 30, 2022 and March 31, 2023, respectively. Net cash used in operating activities were RMB27,545 and RMB25,478 for the six months ended March 31, 2022 and 2023, respectively. As of September 30, 2022 and March 31, 2023, current liabilities exceeded current assets by RMB597,242 and RMB848,038, respectively.

 

These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

We have adopted a defensive strategy after a prudent assessment of the broader macroeconomic downturn since COVID-19 by consolidating internal resources, further improving operating efficiencies and focusing on asset quality improvement rather than aggressive expansion. Our number of rental units contracted as well as number of available rental units decreased by 48.5% from March 31, 2022 to March 31, 2023, as we continued to optimize our rental asset portfolio. On the other hand, our total operating cost and expenses decreased by 56.2% from RMB553.3 million (US$87.3 million) in the six months ended March 31, 2022 to RMB242.4 million (US$35.3 million) in the six months ended March 31, 2023 and our net loss narrowed by 82.2% from RMB243.2 million (US$38.4 million) in the six months ended March 31, 2022 to RMB43.3 million (US$6.3 million) in the six months ended March 31, 2023.

 

We intend to meet the cash requirements for the next 12 months from the issuance date of this report through a combination of bank loans and short-term loan from certain third parties, issuance of ordinary shares or other equity-linked securities. In addition, we have continued to adopt the defensive strategy mentioned above and optimize our rental asset portfolio. Our number of rental units contracted and our available rental units decreased from 55,177 as of March 31, 2022 to 28,400 as of March 31, 2023 during the same period, whereas our loss from operation decreased from RMB 189.0 million in the six months ended March 31, 2022 to RMB42.7 million in the six months ended March 31, 2023.

 

 

10


 

These plan and initiatives cannot alleviate the substantial doubt of our ability to continue as a going concern. There can be no assurance that we will be successful in achieving its strategic plans, that our future capital raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or with acceptable terms, if at all. If we are unable to raise sufficient financing or events or circumstances occur such that we are not able to achieve ideal optimization of our rental asset portfolio, we will be required to reduce certain discretionary spending, or be unable to fund capital expenditures, which would have a material adverse effect on our financial position, results of operations, cash flows, and ability to achieve our intended business objectives.

 

The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the unaudited condensed consolidated financial statements have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

Material Cash Requirements

Our material cash requirements as of March 31, 2023 primarily include our operating lease obligations.

The following table sets forth our operating lease obligations as of March 31, 2023:

 

(RMB’000)

For the six months ending September 30, 2023

 

 

136,507

 

For the year ending September 30, 2024

 

 

175,537

 

For the year ending September 30, 2025

 

 

72,950

 

For the year ending September 30, 2026

 

 

26,765

 

For the year ending September 30, 2027

 

 

14,500

 

Thereafter

 

 

17,968

 

Total

 

 

444,227

 

Cash Flows

Our net cash used in operating activities in the six months ended March 31, 2023 was RMB25.5 million (US$3.7 million), which was primarily attributable to a net loss of RMB43.3 million (US$6.3 million) adjusted by non-cash items of RMB15.9 million (US$2.3 million) and a net working capital inflow of RMB1.9 million (US$0.3 million). The non-cash items of RMB15.9 million (US$2.3 million) were primarily attributable to RMB10.5 million (US$1.5 million) of impairment loss on long-lived assets and RMB3.2 million (US$0.5 million) of depreciation and amortization expenses. The net working capital inflow of RMB1.9 million (US$0.3 million) was primarily attributable to RMB34.1 million (US$5.0 million) increase of accounts payable and RMB22.2 million (US$3.2 million) increase of accrued expenses and other current liabilities primarily due to increase in tenant deposits, offset by RMB14.9 million (US$2.2 million) increase of other current assets primarily due to increase in due from shareholders in connection with their deposit of ordinary shares for issuance of ADS, RMB29.9 million (US$4.3 million) decrease of deferred revenue, RMB8.7 million (US$1.3 million) decrease of deposits from tenants.

We did not record any net cash used in investing activities in the six months ended March 31, 2023.

Our net cash provided by financing activities in the six months ended March 31, 2023 was RMB25.5 million (US$3.7 million). This was attributable to proceeds from short-term borrowings of RMB25.5 million (US$3.7 million).

We did not have any off‑balance sheet arrangement as of March 31, 2023.

Recent Developments

As announced on our Form 6-K dated June 30, 2023, Mr. Lin Zhou has resigned as an independent director and a member of the audit committee of our Company, effective June 30, 2023. Mr. Zhou resigned for personal reasons and has no disagreement with our Company. We appointed Mr. Zhenkun Wang as an independent director and a member of the audit committee of the Company, effective June 30, 2023. Mr. Wang is the founder and CEO of Shanghai Shiwei Technology Co.,

 

11


 

Ltd., a company mainly focused on project and product development in enterprise-level metaverse applications, and has been serving as the chairman of its board since January 2015. Mr. Wang received his bachelor’s degree from Shanghai University of Finance and Economics in 2004.

In addition, as announced on our Form 6-K dated June 30, 2023, we appointed OneStop Assurance PAC Singapore (“OneStop”) as our independent registered public accounting firm, effective as of June 30, 2023. The appointment of OneStop has been approved by both the audit committee and the board of directors of our Company. OneStop replaced Marcum Asia CPAs LLP (“Marcum Asia”), the Company’s former independent registered public accounting firm. We are working closely with Marcum Asia and OneStop to ensure a seamless transition.

Currency Convenience Translation

The conversion of Renminbi into U.S. dollars herein, made solely for the convenience of the readers, is based on the noon buying rate on March 31, 2023 set forth in the H.10 statistical release of the U.S. Federal Reserve Board, which was RMB6.8676 to US$1.00. No representation is intended to imply that the Renminbi amounts could have been, or could be, converted, realized, or settled into U.S. dollars at that rate or any other rate, or at all. The PRC government restricts or prohibits the conversion of Renminbi into foreign currency and foreign currency into Renminbi for certain types of transactions. The percentages stated herein are calculated based on Renminbi.

 

 

 

 

 

12


 

FLJ GROUP LIMITED

(formerly known as “Q&K INTERNATIONAL GROUP LIMITED”)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Renminbi and USD in thousands, except for share and per share data, unless otherwise stated)

 

 

As of

September 30,

 

 

As of March 31,

 

 

 

2022

 

 

2023

 

 

RMB

 

 

RMB

 

 

USD

 

 

 

 

 

 

(unaudited)

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

2,772

 

 

 

2,276

 

 

 

331

 

Restricted cash

 

 

106

 

 

 

106

 

 

 

15

 

Accounts receivable, net

 

 

752

 

 

 

2,301

 

 

 

335

 

Advances to suppliers

 

 

8,501

 

 

 

8,527

 

 

 

1,242

 

Other current assets

 

 

59,029

 

 

 

73,970

 

 

 

10,771

 

Total current assets

 

 

71,160

 

 

 

87,180

 

 

 

12,694

 

Non-current assets:

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

500

 

 

 

342

 

 

 

50

 

Intangible assets, net

 

 

13,475

 

 

 

 

 

 

 

Operating lease right of use assets

 

 

 

 

 

417,556

 

 

 

60,801

 

Other assets

 

 

10,405

 

 

 

10,321

 

 

 

1,503

 

Total non-current assets

 

 

24,380

 

 

 

428,219

 

 

 

62,354

 

Total assets

 

 

95,540

 

 

 

515,399

 

 

 

75,048

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

LIABILITIES (including amounts of the consolidated VIEs
   without recourse to the Group, see Note 2)

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

122,667

 

 

 

156,794

 

 

 

22,831

 

Amounts due to related parties

 

 

4,831

 

 

 

5,394

 

 

 

785

 

Deferred revenue

 

 

129,930

 

 

 

100,074

 

 

 

14,572

 

Short-term debt

 

 

110,097

 

 

 

135,624

 

 

 

19,748

 

Rental instalment loans

 

 

15,756

 

 

 

15,756

 

 

 

2,294

 

Deposits from tenants

 

 

38,439

 

 

 

29,723

 

 

 

4,328

 

Contingent liabilities for payable for asset acquisition

 

 

165,033

 

 

 

159,328

 

 

 

23,200

 

Operating lease liabilities, current

 

 

 

 

 

228,655

 

 

 

33,295

 

Accrued expenses and other current liabilities

 

 

81,649

 

 

 

103,870

 

 

 

15,126

 

Total current liabilities

 

 

668,402

 

 

 

935,218

 

 

 

136,179

 

Operating lease liabilities, non-current

 

 

 

 

 

188,901

 

 

 

27,506

 

Total liabilities

 

 

668,402

 

 

 

1,124,119

 

 

 

163,685

 

 

13


 

FLJ GROUP LIMITED

(formerly known as “Q&K INTERNATIONAL GROUP LIMITED”)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Renminbi and USD in thousands, except for share and per share data, unless otherwise stated)

 

 

 

As of

September 30,

 

 

As of March 31,

 

 

 

2022

 

 

2023

 

 

 

RMB

 

 

RMB

 

 

USD

 

 

 

 

 

 

(unaudited)

 

 

(unaudited)

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

Shareholders’ Deficit:

 

 

 

 

 

 

 

 

 

Class A Ordinary shares (US$0.00001 par value per share;
  
37,500,000,000 shares authorized; 25,878,920,464 shares
  issued and outstanding as of September 30, 2022 and
  March 31, 2023, respectively)

 

 

1,727

 

 

 

1,727

 

 

 

251

 

Class B Ordinary shares (US$0.00001 par value per share;
   
2,500,000,000 shares authorized; nil and 2,500,000,000 shares
   issued and outstanding as of September 30, 2022 and
   March 31, 2023, respectively)

 

 

 

 

 

172

 

 

 

25

 

Additional paid-in capital

 

 

2,954,625

 

 

 

2,956,760

 

 

 

430,538

 

Accumulated deficit

 

 

(3,558,667

)

 

 

(3,601,992

)

 

 

(524,492

)

Accumulated other comprehensive income

 

 

29,453

 

 

 

34,613

 

 

 

5,041

 

Total shareholders’ deficit

 

 

(572,862

)

 

 

(608,720

)

 

 

(88,637

)

Total liabilities and shareholders’ deficit

 

 

95,540

 

 

 

515,399

 

 

 

75,048

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

14


 

FLJ GROUP LIMITED

(formerly known as “Q&K INTERNATIONAL GROUP LIMITED”)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Renminbi and USD in thousands, except for share and per share data, unless otherwise stated)

 

 

For the Six Months Ended March 31,

 

 

 

2022

 

 

2023

 

 

RMB

 

 

RMB

USD

 

Net revenues:

 

 

 

 

 

 

 

 

 

Rental service

 

 

332,783

 

 

 

175,148

 

 

 

25,504

 

Value-added services and others

 

 

31,431

 

 

 

24,522

 

 

 

3,571

 

Total net revenues

 

 

364,214

 

 

 

199,670

 

 

 

29,075

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Operating cost

 

 

(405,661

)

 

 

(217,295

)

 

 

(31,642

)

Selling and marketing expenses

 

 

(189

)

 

 

(15

)

 

 

(2

)

General and administrative expenses

 

 

(25,329

)

 

 

(15,422

)

 

 

(2,246

)

Research and development expenses

 

 

(1,853

)

 

 

(1,308

)

 

 

(190

)

Impairment loss on long-lived assets

 

 

(100,156

)

 

 

(10,474

)

 

 

(1,525

)

Other income (expense), net

 

 

(20,074

)

 

 

2,157

 

 

 

314

 

Total operating costs and expenses

 

 

(553,262

)

 

 

(242,357

)

 

 

(35,291

)

Loss from operations

 

 

(189,048

)

 

 

(42,687

)

 

 

(6,216

)

Interest expense, net

 

 

(54,174

)

 

 

(638

)

 

 

(93

)

Foreign exchange loss, net

 

 

(5

)

 

 

 

 

 

 

Loss before income taxes

 

 

(243,227

)

 

 

(43,325

)

 

 

(6,309

)

Income tax expense

 

 

3

 

 

 

 

 

 

 

Net loss

 

 

(243,224

)

 

 

(43,325

)

 

 

(6,309

)

Other comprehensive income, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

3,642

 

 

 

5,160

 

 

 

751

 

Comprehensive loss

 

 

(239,582

)

 

 

(38,165

)

 

 

(5,558

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share—Basic and diluted

 

 

(0.14

)

 

 

(0.00

)

 

 

(0.00

)

Weighted average number of ordinary shares used in computing net loss per share
   —Basic and diluted

 

 

1,728,612,425

 

 

 

27,715,937,039

 

 

 

27,715,937,039

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

15


 

FLJ GROUP LIMITED

(formerly known as “Q&K INTERNATIONAL GROUP LIMITED”)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT

(Renminbi and USD in thousands, except for share data, unless otherwise stated)

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to FLJ’s shareholders

 

 

 

 

 

 

 

 

Class A Ordinary shares

 

 

Class B Ordinary shares

 

 

Treasury stock

 

 

Additional

 

 

Accumulated
other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
shares

 

 

Amount

 

 

Number of
shares

 

 

Amount

 

 

Number of
shares

 

 

Amount

 

 

paid in
capital

 

 

comprehensive
(loss) income

 

 

Accumulated
deficit

 

 

Total

 

 

Noncontrolling
interests

 

 

Total
deficit

 

Balance at September 30, 2021

 

 

1,544,097,151

 

 

 

99

 

 

 

180,389,549

 

 

 

11

 

 

 

(77,100,000

)

 

 

(5

)

 

 

1,845,295

 

 

 

38,784

 

 

 

(4,378,690

)

 

 

(2,494,506

)

 

 

9,600

 

 

 

(2,484,906

)

Issuance of ordinary shares to settle acquisition of certain assets from two third parties

 

 

7,662,060

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

399

 

 

 

 

 

 

 

 

 

399

 

 

 

 

 

 

399

 

Warrants issued in connection with convertible notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,420

 

 

 

 

 

 

 

 

 

1,420

 

 

 

 

 

 

1,420

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(243,224

)

 

 

(243,224

)

 

 

 

 

 

(243,224

)

Foreign currency translation adjustments